Invesco Outpaces Earnings Ests - Analyst Blog - Franklin Resources (NYSE:BEN), Invesco (NYSE:IVZ)

Invesco Limited's (IVZ) fourth quarter earnings of 44 cents per share breezed past the Zacks Consensus Estimate by 4 cents. The results also compare favorably with earnings of 30 cents in the prior-year quarter.

On a GAAP basis, earnings came in at 37 cents per share, compared with 25 cents in the year-ago quarter. GAAP results for the reported quarter included $26.7 million of transaction and integration charges.

Invesco's earnings soared over the prior-year quarter primarily on an increase in net revenue as a result of inclusion of the retail asset management business of Morgan Stanley (MS), partially offset by an increase in operating expenses. Invesco had acquired Morgan Stanley's business divisionin the second quarter.

For full year 2010, adjusted earnings were $1.38 per share, substantially better than 89 cents in 2009. This was also ahead of the Zacks Consensus Estimate of $1.33.

Quarter in Detail

Invesco's adjusted net income increased 13% from the prior quarter and a whopping 60% from the prior-year quarter to $209.3 million. For the full year, adjusted net income shot up 69% over the prior year to $639.7 million.

Invesco's adjusted net revenue upped 8% sequentially and 35% year over year to $761.7 million. On a sequential basis, revenues escalated primarily due to increases in investment management fees and performance fees.

Also, foreign exchange rate changes helped net revenue for the reported quarter increase by $5.3 million from the prior quarter. Net revenue missed the Zacks Consensus Estimate of $1.0 billion.

For the full year, adjusted net revenue came in at $2.6 billion, up 31% from $2.0 billion in 2009. However, the reported figure fell short of the Zacks Consensus Estimate of $3.5 billion.

Adjusted investment management fees rose 7% sequentially and 27% year over year to $799.1 million. Service and distribution fees climbed 5% sequentially and 81% year over year to $202.0 million.

Adjusted operating expenses grew 4% sequentially and 27% year over year to $481.5 million. On a sequential basis, employee compensation expenses increased 3% to $305.1 million primarily on higher variable compensation, including bonuses linked to performance fees of the reported quarter.Marketing expenses moved up 15% from the prior quarter to $51.9 million.

Adjusted operating margin for the quarter was 36.8% compared with 34.8% in the prior quarter and 33.2% in the prior-year quarter.

Assets Under Management

Increased market values as a result of the gradual recovery of the global equity markets improved assets under management (AUM) by 2% sequentially and 34% year over year to $616.5 billion as of December 31, 2010. Average AUM for the reported quarter was $616.0 billion compared with $583.3 billion in the prior quarter and $453.4 billion in the prior-year quarter.

Long-term net outflows were $17.0 billion compared with net inflows of $4.9 billion in the prior quarter and $6.5 billion in the prior-year quarter. Money market net outflow was $1.6 billion as against $2.4 billion in the prior quarter and $7.8 billion in the year-ago quarter.

Dividend Update

Concurrent with the earnings release, the company declared a fourth quarter dividend of 11 cents per share. The dividend will be paid on March 9, 2011, to shareholders of record on February 23, 2011.

Our Viewpoint

We expect Invesco's improving long-term investment performance to boost operating results. Also, the company appears well positioned to benefit from the improvement in global investment flows, thanks to its broad diversification.

However, we remain concerned about increased operating expenses, higher redemptions and the volatility of U.S. dollar. The company could also face near- to mid-term challenges related to the municipal money market fund.

Invesco currently retains a Zacks #3 Rank, which translates into a short-term Hold' rating. Considering the fundamentals, we maintain our long-term “Neutral” recommendation on the shares.

Today, Invesco's competitor––Franklin Resources Inc. (BEN) reported better-than-expected fiscal first quarter 2011 earnings. Results reflected strong growth in revenue and higher AUM, partially offset by increased operating expenses.